In New Market, Knowledge Is PowerMon, 02/25/2019 - 17:46
In a new electricity market with infant rules and regulations, it is little surprise that many players have trouble unravelling its intricacies. Paolo Salerno, Founding Partner at S&J Law Firm, says this presents opportunities for those who are well-versed in the regulatory framework to provide legal and consultancy services to new players. “When analyzing a coverage contract from a purely legal standpoint, many things might slip through the cracks without adequate knowledge of the market’s development,” he says. “Mexico’s wholesale electricity market (WEM) is complex and PPAs are actually bilateral contracts for a wide array of products and services.”
S&J is an international firm that provides specialized legal, business, infrastructure and training services for Mexico’s energy industry players. It prides itself on breaking the traditional law firm mold. Instead of trying to cover all bases, S&J sticks to what it knows and cultivates broad expertise over a handful of specialties. “We are highly specialized on the WEM and renewable energy,” Salerno says. “While some firms remain focused on relatively superficial aspects, such as permitting procedures, we are able to undertake much more complex transactions.” This includes coverage contract structuring and project purchase process structuring.
In addition to this list of legal specialties in Mexico’s energy market, S&J also includes a business area where it advises on and assists in the development of renewable energy projects, from the greenfield stage and onward. Salerno says this department is the result of the firm’s deep expertise. “As a vertically-integrated firm, we provide a turnkey process where we can identify Tier 1 products, draft contract warranties, and assist with the design of isolated supply and distributed generation systems,” he says. “By providing for both areas, we can craft regulatory and business planning for our clients based on their consumption level and pair them with fitting suppliers.” Rather than taking the responsibility for projects out of the owners’ hands, Salerno says the firm felt it could create far more added value by teaching its clients about the market. He says this offers clients the comfort that the firm really makes the right decisions for the benefit of the project.
To strengthen its work in solidifying market players’ understanding of the electricity market, S&J is betting on strategic alliances, including with other legal firms. Salerno says these alliances serve to bridge gaps in respective specialties. “This synergy provides S&J the tools to offer a diversified service portfolio to our clients without investing in additional human resources, infrastructure or engaging in a lengthy and costly learning curve in a niche that is outside our realm of expertise.”
S&J has also signed agreements with EPC companies to participate in client bids for specific requirements. “Alliances are vital, especially in such a new energy market like that in Mexico,” he says. “Its dynamic nature means it is easy to be left out of potential business opportunities or overlook new legal developments. Alliances with companies that are renowned experts in their respective business area reinforce credibility and work quality in the eyes of our customers.” S&J believes the main issue in the market is the lack of access to information. “Taking the Basic Supply Tariff as a reference, we are not yet at a point where we can pinpoint the variables in the methodology of the tariff calculation,” he says. “Meanwhile, Basic Supply Tariffs are still affected by political interference unrelated to market forces.” He says the optimum phase where Basic Supply Tariffs reflect CFE’s generation, transmission and distribution costs, separate from political cycles, has yet to be reached.
In an effort to combat this uncertainty, S&J has catalogued, analyzed, studied, read between the lines and identified business applications of all energy-related legislative publications in the Official Federal Journal from December 2013 to date. Salerno stresses the importance of the efforts made in disseminating all available information. “It is a daily follow-up activity. Knowledge of new regulation will separate the firms that will prosper in the market from those that will not,” he says. With this information acting as a launchpad, S&J is primarily focused on SMEs, across the power generation, qualified supply and qualified user niches. “We are well-positioned to provide project purchase, permitting, advisory and regulatory structuring services to WEM players,” says Salerno.